Chinese Restaurant Stock Analysis Series Part 4: Chagee (CHA)
Really undervalued beloved Chinese milk tea chain; ADR risks persist
Welcome to part 4 of my Chinese restaurant stock analysis series and I’m so sorry for not posting anything for what three weeks now. I had a lot of work that I had to catch up with and just couldn’t find the time to actually sit and type 3000-5000 words. But trust me, I used the break to research some undervalued and high alpha names for you guys and hopefully the next few weeks are going to be a bonanza for you. I’ll try my best to be more regular from now on and I sincerely hope that you’ll forgive my extended absence. With all that out of the way now let’s get into the nitty gritty details of today’s stock, shall we?.
In this part, I’ll be covering Chagee, which is a very popular and rapidly expanding milk tea chain in China and South East Asia. I personally love their products and brand and have been waiting for their IPO for quite some time now. Let’s first begin by looking at a top down sectoral overall of the Chinese tea industry.
History of tea in China
China’s tea industry is one of the world’s oldest and most expansive agricultural sectors. It traces back millennia and today accounts for billions in revenue and billions of kilograms in output. Renowned for iconic varieties – from the Longjing green tea of Zhejiang to Pu’er of Yunnan – the Chinese market has expanded rapidly in recent years. According to industry analysts, national tea revenue grew from about US$77 billion in 2020 to over US$106 billion by 2023, and was projected to surpass US$110 billion in 2024. This growth reflects both traditional tea consumption and new innovations. Modern Chinese producers blend heritage with health-focused innovation, introducing flavored, ready-to-drink and functional teas to meet evolving tastestridge.comtridge.com. At the same time, milk and bubble tea – the sweet, chewy tapioca concoction born in Taiwan in the early 1980s – have become hugely popular in China. Known locally as zhenzhu nai cha (珍珠奶茶), bubble tea spread to mainland China over the 1990s and 2000, eventually spawning an entire “new-style tea” segment of artisanal drink chains. By the 2010s, Chinese entrepreneurs and investors had built specialty tea shops across the country, marking a shift from low-end powder mixes to higher-end “tea bars”. This new wave saw drink menus diversify far beyond milk tea to include cheese-capped brews, fruit-infused blends and seasonal specials, often at prices of ¥15–25 per cup. The domestic market for these freshly mixed tea beverages has soared: one market consultancy estimated China’s new-style tea market reached ¥354.7 billion in 2024 and could exceed ¥400 billion by 2028.
Chinese consumers have embraced bubble tea and related beverages as part of a contemporary lifestyle. Surveys by market researchers show that young consumers are highly loyal – nearly 88% of milk and bubble-tea drinkers report purchasing these drinks at least twice a week – and are willing to pay premium prices (most accept ¥11–20 per cup)m.winshang.com. The most popular categories are fruit teas (42.6%) and milk teas (42.1%)m.winshang.com, reflecting a blend of traditional tea flavor with candy-like sweeteners, dairy, and novel toppings (tapioca pearls, jelly, pudding, etc.). This consumer devotion keeps demand growing despite heavy competition. Trends toward “zero-sugar” or healthful ingredients have also emerged: in packaged tea products, nearly half of consumers report following healthier, sugar-free options. Social media and lifestyle branding play a strong role; many brands cultivate millions of online “members” or followers and tie into pop culture (for example, Chagee’s opera-themed branding invokes classical Chinese). At the same time, regional preferences persist – for instance, in southern cities fruit-forward teas often outsell plain milk tea – but nationwide tastes continue to diversify. Chinese bubble tea brands have also begun to look overseas: by late 2023 Mixue had over 4,000 overseas outlets (mostly in Southeast Asia), and in mid-2024 brands like HEYTEA and Chagee staged promotional pop-ups at international events (such as the Paris Olympics) to raise global awareness. In short, milk and bubble tea has evolved from a niche niche novelty into a robust, mainstream sector within China’s broader tea industry.
Now that I’ve given you a primer into the sector as a whole, let’s now move into the background and analysis of Chagee.
History of Chagee and what differentiates it from the competition
Chagee (霸王茶姬) is one of the fastest-growing names in this “new-style” Chinese tea market. Founded in 2017 in Kunming, Yunnan by entrepreneur Zhang Junjie, Chagee built its brand on combining traditional tea quality with modern branding. Its Chinese name and logo draw from the famous Beijing opera Farewell My Concubine(the company calls its customers “tea friends” or chayou), and stores are furnished with elegant wood and white décor evoking a contemporary tea house. The signature menu items are milk teas made by adding fresh milk to whole-leaf brews, each given a poetic name. Unlike many older chains that rely on powdered mixes, Chagee emphasizes “freshly made” teas, often charging around ¥20 per drink. This positioning – premium fresh ingredients at mid-range price – has led analysts to describe Chagee as an “Oriental Starbucks.” Indeed, its carry-out packaging has been likened to designer shopping bags and the company’s marketing stresses quality and wellness. Chagee also operates mostly on a franchise model. By mid-2024, Chagee’s own corporate site reported that it had surpassed 6,000 outlets worldwide.
Franchisees are typically well-experienced operators (Chagee requires owners to be at least 25 years old with prior work history), and the brand boasts a low store closure rate (under 3%) and high unit profitability (around 95% margins on capital). Chagee’s growth has been fueled in part by significant investment: for example, in 2021 it raised over ¥3 billion in funding which accelerated expansion. The company also experiments heavily with youth-targeted marketing: it has run social-media contests (letting fans vote on favorite drinks), limited-edition “blind box” campaigns hidden in tea cups, and even publicly apologized for underperforming products to turn negative buzz into positive word-of-mouth. One promotion involved inserting gift coupons or even luxury items (like Gucci scarves) into a random third of its cups, which reportedly boosted sales to about ¥25,000 per store on holiday promotion day. Such tactics, along with an active presence on platforms like Weibo, keep Chagee tightly attuned to the tastes of Gen Z consumers.
Chagee’s expansion has been rapid. After launching in Kunming, it moved headquarters to Chengdu in 2021 to better access western China markets. In late 2019 it opened stores in Malaysia and Singapore; by 2022 it was in Thailand as well. Overall the brand has sought high-traffic locations – from urban malls in first- and second-tier Chinese cities to well-known overseas malls. By late 2024 Chagee reported about 177 million “tea friends” (members) and some 6,440 global outlets. This footprint is indeed globalizing: Chagee’s official site notes active stores in Malaysia, Singapore, and Thailand, and it is “bringing [its] modern tea culture to the United States”chagee.us. The rapid scale-up culminated in a U.S. listing: on April 17, 2025 Chagee completed an IPO of American Depositary Shares on the Nasdaq (ticker CHA) at $28 per share. The offering raised about US$411 million, valuing the company at roughly $3–4 billion. Its debut was strong – Chagee’s shares opened over 20% above the IPO pricesohu.com – suggesting investor enthusiasm for the China tea-drink story.
Financially, Chagee’s topline climbed steeply alongside its outlet count. Industry media estimated Chagee’s revenue at around RMB 500 million in 2022 and then about RMB 10.8 billion in 2023 to finally about 12.41 billion RMB in 2024. (For context, this implies average sales on the order of RMB 7,000–8,000 per day per store, a healthy level for the segment.) The IPO prospectus corroborates this. For example, Chinese press noted Chagee’s listing made it “China’s first tea-drink company on Nasdaq”. These topline metrics dwarf those of some rivals but are still smaller than those of the giant volume chains.
Among Chagee’s competitors, a few other homegrown brands stand out. Changsha-based Heytea (喜茶) pioneered the cheese-foam tea trend around 2012 and built an urban-premium image. It remains at the high end of the market. According to Heytea’s 2023 report, it reached over 3,200 outlets worldwide by year-end and had more than 100 million loyalty members. Under a franchising push launched in late 2022, Heytea added roughly 2,300 new shops in one year – a 280% increase – focusing on prime commercial districts. Heytea has also expanded overseas (entering the UK, Australia, Canada, Malaysia, and the US in late 2023), sometimes with splashy debuts (its London store sold ~2,000 bottles on opening day). Beijing-based Nayuki (奈雪的茶), which went public in Hong Kong in 2020 (HK code 2150), is another key player targeting a slightly lower price point. Nayuki’s 2023 revenue was around HKD 5.16 billion (about USD $660 million) and it has a popular “light” menu line under ¥20. For perspective, Nayuki’s average in-store check has historically been ~¥42–43, and the chain also offers fresh bakery items alongside tea (they are still not profitable). Meanwhile, Mixue Bingcheng (蜜雪冰城), originally an ice-cream and shaved-ice stall founded in Henan in 1997, has grown into the world’s largest iced-drinks franchise by store count. Mixue’s IPO on the Hong Kong Exchange in March 2025 highlighted this scale: its filings showed over 45,000 stores globally by September 2024. Mixue’s model is very low-price (often selling drinks for CNY 6–10), and unlike more brand-focused chains it derives much of its revenue by selling raw ingredients, equipment and packaging to franchiseesreuters.com. Financially, Mixue reported 2024 revenue of RMB 24.83 billion (up 22.3% year-on-year)and net profit of RMB 4.45 billion (up 39.8%). Its IPO raised US$444 million and the stock jumped ~47% on debut.
Other notable brands include Coco Fresh Tea & Juice (a Taiwanese chain with over 2,000 stores globally), The Alley (famous for its brown-sugar boba), Tiger Sugar, Koi, Lelecha (Royaltea), Dakasi, and Chatime, among others. These rivals pursue varied strategies. Many engage in marketing tie-ins and collaborations: for example, limited-time flavors with cartoon characters or co-branded merchandise with fashion labels. Social-media hype is common (e.g. viral short videos of making drinks, membership flash sales on WeChat). Premium players often highlight craft and exotic teas, while value chains emphasize affordability and speed. In 2022–2023 the industry also experienced a “price war”: leaders like Heytea and Lelecha introduced new drink lines capped at ¥20, and Nayuki launched a ¥9–19 “Light Series”drpress.org, forcing many competitors to recalibrate pricing. Yet overall consumer demand remained high: one survey found that 26% of regular drinkers planned to increase their bubble-tea consumption in the coming year. Apart from Mixue and Chagee, none of the other players are consistently profitable hence establishing the clear operational efficiency and moat of these players. Chagee’s PE ratio is 50% cheaper than Mixue highlighting how undervalued it is.
Cultural factors and consumer psychology are key drivers. Traditional Chinese tea culture underpins a respect for freshness and flavor variety, which helps legitimize these modern shops as heirs to a tea heritage. At the same time, the mall-shop aesthetics, Instagrammable packaging, and indulgent menu options appeal to younger urbanites. Chagee, for instance, leverages national pride by sourcing local tea leaves (Yunnan’s famed jasmine green tea for its signature jasmine milk tea) and by using opera symbolism in its logo. It often holds “trend events” timed to holidays or new store openings, such as its cup-peel lottery (“tear & win”) promotions in Malaysia. Consumer behavior is also shaped by convenience tech: mobile ordering apps (WeChat, Alipay mini-programs, and proprietary apps) and delivery services (e.g. Meituan, Ele.me) have become standard channels for bubble tea sales. Loyalty programs and data analytics allow brands to push tailored promotions to millions of members, further deepening engagement.
Looking ahead, the Chinese tea beverage sector appears poised for continued growth, albeit at a more moderate pace as the market matures. Analysts expect the overall market (traditional and new-style combined) to keep expanding by several percent per year. Investment continues pouring in: in addition to Chagee and Mixue, other bubble-tea brands are eyeing public listings (some via overseas stock markets), and beverage giants and VCs are funding organic tea startups or acquisitions. Technological integration is accelerating – from AI in tea farming (optimizing harvest yields) to robotics in drink preparation, to blockchain for supply-chain transparency. Healthy and functional claims are increasingly important, with innovations like tea blends targeting wellness (antioxidants, herbal infusions) likely to grow. Meanwhile, international expansion remains a clear focus. Chinese chains are establishing a presence in Asia-Pacific, North America and even Europe (as with HEYTEA’s New York and London stores), tapping into global bubble-tea trends and the Chinese diaspora. China’s broader strategy of promoting its cultural exports also bodes well for tea brands abroad; some have even formed partnerships with overseas distributors and retail chains.
In summary, Chagee exemplifies the modern Chinese tea startup: deeply rooted in Chinese tradition yet aggressively innovative. Its rapid rise reflects broader industry dynamics: an enormous domestic tea legacy being reinvented for a health- and experience-conscious generation, amid intense competition and feverish investment. With steady consumer demand and strong branding, analysts believe leading companies like Chagee, Heytea, Nayuki, and Mixue will continue to capture market share at home and abroad, while inspiring constant product and marketing innovation. By some projections, the Chinese tea-drinks market may reach or exceed ¥400–500 billion within a few years, driven by both new outlets opening in lower-tier cities and further penetration of online and global channels. For investors and entrepreneurs, the opportunity remains vast: tea is woven into China’s culture, and its modern incarnation as “fresh-mixed tea” beverages has become a mainstay of urban life. As one industry report put it, Chinese tea companies are translating heritage into innovation – ensuring the sector’s dynamic growth in the coming decade.
Chagee’s valuation and some risks
Chagee's meteoric rise in recent years is now a fundamental part of its investment story. The company has achieved phenomenal growth on two fronts: aggressive opening of teahouses and explosive same-store sales growth. This wasn't just organic growth-it was explosive. Chagee grew the number of teahouses over 10 times in just a few years' time, and growth shows little sign of slowing. Even more impressively, it grew to profitability, indicating that the business model is not only replicable, but is also positioned for growth beyond market potential-a powerful proposition. Equally impressive was the growth in productivity per location. According to the prospectus, the average Chagee teahouse served 8,981 cups of tea in a month in 2022. By 2024, the average teahouse reportedly sold 25,099 cups. This is a significant increase in sales and indicates strong consumer demand, and presumably indicates that Chagee has found a formula that works not just for opening new locations, but also maximizing revenue on a location-by-location basis. While Chagee offers a broad menu, an astonishing 91% of revenue in 2024 came from core tea latte items, and 61% of revenue from three best selling core products even. The concentration around a successful core product is not only efficient, but allows for greater marketing scalable growth.
Although Chagee is a relatively new company, their early financials are impressive. Since there are not many historical financial filings to examine, investors must depend heavily upon the prospectus, but the information is still encouraging. Company revenue growth is matched with steady profitability each quarter, and was particularly strong in 2023 and 2024 where Chagee was profitable every single quarter.
What is even more striking is the historical PEG ratio (Price/Earnings to Growth). After some strong gains on their first day of trading, Chagee's 2024 earnings suggest a P/E of 17.26. Earnings grew 213.3% between 2023 and 2024 when Chagee was profitable every quarter. Without forward guidance, this historical PEG is very attractive, because it shows that the company is growing at a very fast rate, and is still trading at what appears to be a reasonable price compared to their growth level.
Chagee is extremely optimistic about their growth estimates in their 6,284 teahouses as of 2024. In fact, that number is insignificant in the scope of the size of the tea market in China. In addition, global expansion provides another exciting way to grow. The global tea market size was $467.1 billion in 2024 and is projected to grow to $601.9 billion by 2028. In 2024, Chagee’s revenues totalled $1.7 billion, meaning that they have a lot of room to grow.
Chagee has already begun their global expansion, with Malaysia operating 148 locations already. Expanding in Malaysia makes sense due to the large ethnic Chinese population there. The chagee has also begun its expansion in Singapore and Thailand as well. Thailand has a similar number of people of Chinese descent compared to Malaysia’s; however, they currently only have two Chagee locations, indicating there is greater opportunity. Other markets within Southeast Asia could also be viable markets particularly Indonesia, due to their demographic and culture of tea-drinking.
Chagee’s brand is rooted in Chinese tea culture, but there is some suggestion that they could adapt their value offering to other tea-drinking nations such as, Turkey, UAE, Saudi Arabia and Argentina among many other potential markets. While China’s middle class continues to grow, and tea drinking habits remain globally high, Chagee has a real opportunity to become a global name in premium milk tea.
Just prior to the IPO for Chagee, worries resurfaced regarding the delisting of Chinese companies from U.S. exchanges. These fears were totally false and worsened by trade policy rhetoric coming from the Trump Administration. While this has happened before (PetroChina), Chagee seems to be less exposed to political targeting. When the primary business is "Starbucks for tea," and there are no clear associations with anything related to the Chinese military complex or other industries of concern, it is not like Chagee is clearly wanting to be on some hit list.
Additionally, Chagee Holdings Limited is incorporated in the Cayman Islands, which creates even more legal and structural distance between Chagee and any geopolitical conflicts. No company can ever be completely free from the risks regarding regulation, but looking at Chagee relative to the rest of the Chinese ADR universe, the threat is low.
No growth narrative is without constraints. Although Chagee is still far from saturated, it should be clear to investors that the market, although substantial, is not infinite. Like Starbucks at the height of its rapid growth, unchecked expansion could lead to cannibalization if not managed properly.
Consumer preference matters too, while tea clearly has a deeply embedded cultural moat in China and many parts of Asia, changing consumer patterns could impact demand, including a dinner-guest preference for coffee or introducing health-conscious alternatives. Premium milk tea, which is Chagee's daily bread, is not ubiquitous, and it does not resonate equally in every demographic and price point.
Having said that, the company has demonstrated an ability to grow at an astonishing and simultaneously profitable, hasty pace without a loss of ability to manage in specific locations.. In the near to medium term, Chagee is expected to make additional moves in regional availability.
You can play around with reasonable numbers on Excel or a financial calculator if you wish to but in my view, at 15-18x earnings Chagee’s stock looks to be absolute steal relative to its fundamentals any way you so wish to slice it. I won’t be setting any target price for this company because as of right now, the sky’s the limit for this thing. Unlike Luckin Coffee (I’ve covered this and own it), there’s no heightened margin risk because of the premium market position here as compared to Luckin.
Just some final thoughts for you guys: whenever I’m analyzing Chinese companies in general and Chagee in particular among many others; I’m blown away by the sheer entrepreneurial prowess of Chinese entrepreneurs, I mean think about it this company was founded in 2017 about 7-8 years ago and it has 1.2 billion USD in revenue in such a competitive market. It gets me thinking, why is it that the rentiers and monopolists in the US are so beloved— just because they’re easy money for laymen investors? the US was built around being the “land of opportunity”, where any average Joe had the hope of making it big, the sheer differences between American and Chinese entrepreneurs reinforces my thesis about the future being one where the Chinese dominate even further. There’s simply no other country out there which can match the level of competition prevalent in China; this competition is what differentiates Chinese companies and leads to constant innovation.
As investors it’s easy to buy “free market monopolies” in the US but isn’t picking the winner among a host of competition the real differentiation between a decent and a great investor?, I would love to hear your thoughts on this opinion as well as the investment thesis that I’ve outlined.
Have also been looking at them. A concern I had was the product portfolio. Tea lattes (and semi relatedly guochao) are very on trend at the moment but I worry a new trend will emerge.
Tea lattes from chagee/chayan yuese are just much better business than the fruit heavy stuff Nayuki/Heytea make. Higher gross margin, easily automated with modified espresso machines, 75% faster production in store, much simpler supply chain (basically just milk and various types of tea leaves). Chagee massively simplified their menu in iirc late 22, and you saw a huge jump in GM as a result. What happens to both revenues and margins if tea lattes ever get less trendy?
The guochao fervour they've tapped into is similar with logo/packaging etc. is similar but I'm less concerned here. They seem very on top of marketing and I think they can manage to pivot to any new trends without hurting margins.
Thanks Dragon, a great paper and very informative. I live in Malaysia so have seen Chagee up close, in addition to spending considerable time in China recently. To all those doubting Thomas's who say China is uninvestable, I say go and have a look. It will blow your socks off!